Evidence of meeting #1 for Subcommittee on Oil and Gas and Other Energy Prices in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was price.
A recording is available from Parliament.
11:35 a.m.
As an Individual
The price has gone up because the demand for crude has gone up. You're only seeing one piece of the puzzle by looking at U.S. statistics.
11:35 a.m.
Conservative
August 27th, 2008 / 11:35 a.m.
Independent
André Arthur Independent Portneuf—Jacques-Cartier, QC
Thank you, Mr. Chair.
Our three guests are giving clear answers to the questions they are being asked. But sometimes, they are not very much help because the law of supply and demand is a big concept that can explain any number of things. But, when my colleague Mr. Carrie asked you a specific question, you started to mutter an answer that I did not understand. I even had to turn to this young grandfather to my left so that he could repeat what the muttering was about.
Ms. Savage, what would be the effect of a carbon tax on oil prices in Canada? I would like a clear answer that I can hear.
11:40 a.m.
President and Chief Executive Officer, Canadian Independent Petroleum Marketers Association
As I said earlier, a carbon tax applied directly to gasoline at the pump would result in an increase in price. Anything other than that is unclear; that's all I can say. Without understanding exactly how it would play out, I can't forecast. If it's applied somewhere else or to other commodities—for example, to crude oil only.... It depends on the circuit and how it goes through. I can't answer that question until we know specifically.
11:40 a.m.
Independent
11:40 a.m.
As an Individual
My answer is that it's going to cause the price to go up. I don't care where you put it on or how you do it; if it's a tax, it has to be reflected eventually in the price. That's my personal perspective.
11:40 a.m.
President, Canadian Petroleum Products Institute
My answer would be closer to Madam Savage's. It really depends on the implementation details of that tax and what products it's imposed on. Talking about a carbon tax in general, the devil is always going to be in the details, if one is to comment specifically on what the impacts on price would be.
11:40 a.m.
Independent
André Arthur Independent Portneuf—Jacques-Cartier, QC
We talked a lot about speculators, who are somewhat to the petroleum market what scalpers are to show business; they buy a thing in advance and then sell when it's needed. We know there are some huge concerns, such as in Switzerland, that are busy putting huge amounts of money into petroleum stocks all over the world. Vitol seems to be quite a discovery.
How could we make sure those foreign concerns are not investing Canadian money, be it from Power Corporation, the teachers, or la Caisse de dépôt et placement du Québec? How can we make sure there is no Canadian money behind those scalpers?
11:40 a.m.
President and Chief Executive Officer, Canadian Independent Petroleum Marketers Association
In my opinion, I think you have to ask them.
11:40 a.m.
Independent
André Arthur Independent Portneuf—Jacques-Cartier, QC
The price of gas at the pump hits Canadians directly when they fill up their cars. They pay, they suffer and they move on. They grumble, they hate you, but that is your problem.
The price of diesel hits everyone, because it has an impact on public transportation and on the cost of goods that have to be transported. This impact is more insidious and much more long-term than the price of ordinary unleaded gas. Naively, I always imagined that it cost much less to refine diesel than to refine gasoline because, for diesel, the processing is shorter and it uses things that you do not have to remove, except sulphur now.
Can you help a simple soul like me to understand why a product that costs less to refine costs more to buy?
11:40 a.m.
President, Canadian Petroleum Products Institute
The principal reason really comes down to supply and demand balances. There has been a much greater demand, and growth in demand, for diesel over the last number of years than there has been for gasoline. So the supply and demand situation for diesel, not just in Canada but in North America and throughout the Atlantic basin, is much tighter. As a result of that tightness in supply and demand, diesel prices are higher, and diesel prices have risen higher than gas prices.
11:40 a.m.
Independent
André Arthur Independent Portneuf—Jacques-Cartier, QC
So if supply and demand operated normally, an honest market--seeing a bigger demand for diesel--would simply refine more diesel and less gasoline. They don't do that. They jack up the price. Is there something wrong there?
11:40 a.m.
President, Canadian Petroleum Products Institute
Because it's very difficult.... Our Canadian refineries are configured in what has traditionally been the split between gasoline and diesel demand. So those refineries are configured to produce a certain proportion of diesel and a certain proportion of gasoline. That can't change overnight. You can't just turn a switch and all of a sudden say we--
11:45 a.m.
Independent
11:45 a.m.
President, Canadian Petroleum Products Institute
You're talking about a period of years of investment through a number of different cycles of refinery investment to be able to make a configuration change of the magnitude that would allow you to significantly change the proportion of diesel to refinery produced in a Canadian refinery.
11:45 a.m.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
I'm just receiving information from the Department of Energy in the United States--it's too bad we can't get it from here--that crude is down to its lowest level of consumption since 1998, and yet we may see crude actually increasing today. Again, there is this opposite effect: demand is down, prices are up, and consumers are very frustrated.
Mr. Boag, I want to ask you a question about the Toronto market, but it may also play into other markets as well.
Ms. Savage, you may also want to respond to this as best you can.
In May, retail margins in Toronto--and I include Clarington, Oshawa, Ajax, Pickering, Mississauga, Etobicoke, all the way to Burlington--were in the average of 5¢ a litre, almost without exception. Over the past 10-week period, that retail margin has gone from 5¢ to 6.5¢ uniformly and in lockstep. Furthermore, diesel wholesale prices relative to gasoline and premium relative to gasoline on the order wholesale of 4¢ to 5¢ a litre--facts that your association and its members kindly offer at 3 o'clock in the morning--is self-evident.
Mr. Boag, can you explain to me why your members, who have such a preponderance in my market in the GTA, covering some four million to five million Canadian motorists, are able to get exactly the identical price higher than it has been certainly in the past month and a half? And how do you explain the 4¢ or 5¢ differential from where you were just a few months ago?
11:45 a.m.
President, Canadian Petroleum Products Institute
That's ultimately driven by the supply and demand conditions within the market. And those are the decisions of the hundreds of individual retailers, who can look across the street to see what their competitor is charging, and they're based on the fact that they want to retain their business and not see their business go to their competitor.
11:45 a.m.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
Wouldn't your business be better off if the price was lower, rather than charging a higher price that's identical to the competitor across the street, who may also happen to be your supplier?
11:45 a.m.
President, Canadian Petroleum Products Institute
I can't comment on the decisions of individual retailers, but that's the nature of a competitive market.
